恩智浦 (NXPI) 2009 Q3 法說會逐字稿

Welcome to NXP Semiconductors third-quarter 2009 results -- investors' and analysts' conference call on Friday, October 23, 2009. During the introduction by Mr. Rick Clemmer, CEO, and Karl-Henrik Sundstrom, CFO of NXP, all participants will be in a listen-only mode. After the introduction, there will be an opportunity to ask questions. (Operator Instructions). Please note that this call will be recorded.

I will now hand the conference over to Mr. Rick Clemmer. Please go ahead, sir.

Thanks very much, operator. Ladies and gentlemen, welcome to NXP's third-quarter 2009 results. I hope you have all seen a copy of the results, press release and the presentation on our website.

To begin, I'd like to refer you to slide number 2 of our presentation for our short Safe Harbor statement relating to forward-looking statements. Regarding guidance, I remind you that, as before, we will only give guidance for sales for the next quarter to be reported and no further detailed guidance. Please note that all figures are quoted in US dollars and exclude the divested wireless business.

Today, I'd like to provide an update on our operating environment over the last quarter, along with an overview of our performance. I'll then give a brief update on the progress and highlights of our redesign program and a summary and impact of our debt reduction actions in the quarter. Finally, I will share with you the significant milestones, such as the announcements with Trident and Virage Logic, which will help us to further establish ourselves as a leader in high-performance mixed-signal, supported by a strong standard products business. I will then hand over to [Kalley] for more detail of our overall financial performance and on each one of the individual business units.

First, let me start with an update on the general market environment. We reported three months ago that we were seeing supply chain replenishment and the impact of economic stimulus packages in China and the automotive Cash for Clunker programs in the US and Europe having a positive impact on the business compared with the first quarter. This trend we had identified at that time has continued into the third quarter. While this improvement is good news, there is also no doubt that the effects of the economic and financial crisis continue to have an impact on the business compared to this time last year.

Against this backdrop, the sequential improvements we saw in the second quarter continued, with Q3 nominal sales increasing by 21% and comparable sales increasing by 19% compared to Q2. Taking into account the divestment of the wireless business, year-on-year sales were down by around 15%, an improvement on Q2, when year-on-year sales fell by some 30%.

Net income for the third quarter of 2009 was a profit of $412 million. This compares favorably to a loss of about $2.5 billion in Q3 of 2008, where we had taken major restructuring provisions and write-offs. In Q2 2009, we had a profit of $344 million. The sequential increase in net income is largely explained by improved operating results and the result of the debt restructuring transactions during the quarter.

Improvements have been visible across all business segments in all regions. However, Asia, led by China, shows the fastest recovery from the crisis, although we are not yet assuming that this is a sign of a sustained improvement in the operating environment for semiconductors.

During the period, we have made continued good progress on the NXP redesign program. The process and product transfer programs relating to the fabs in Hamburg and Nijmegen are on track. In the US, production at the wafer fab in Fishkill, New York, stopped in early July. And the fab in Caen was sold in June.

The ongoing program is forecast to have restructuring costs of no greater than $700 million, and as the Company has been able to accelerate the program versus the original plan, is expected to achieve higher annual savings that initially projected, which were $550 million, by the end of 2010. To date in the program through the end of third quarter 2009, $361 million of the restructuring cost has been paid out.

In addition to the operational restructuring, we continue to make good progress in reducing our debt levels. In the third quarter, our total debt was reduced by $814 million as a result of our tender offer and several privately negotiated transactions. Combining the results of all debt restructuring transactions so far this year, we have reduced our total debt by more than $1.3 billion. We feel we have achieved a great deal this year on the restructuring of our balance sheet and are very pleased with the results so far.

Furthermore, last year we paid just over $500 million in interest expenses, on the basis of the current rates of our annual cash interest expenses would amount to just over $300 million.

In our last call, I discussed our plans to focus our investments on our high-performance mixed-signal portfolio, supported by a strong standard products business. As a brief recap of the history, most semiconductor companies focused on either analog or digital. However, systems have evolved beyond this simple analog or digital partitioning and have requirements that cannot easily be solved just in analog or digital domain.

Today's engineers want and need integration, enrichment, driving density of functionality, interfacing of analog and digital. High-performance mixed-signal combined the very important analog and digital design techniques and process capabilities. Given the growth in the demand for high-performance mixed-signal products, NXP's deep technology expertise and track record in this area and the barriers to entry in the specialized segment, our goal is to increase our investment and focus on this area.

More specifically, we will prioritize investments in RF, analog, power, and digital processing technologies with a specific focus on the automotive, industrial, consumer, lighting, medical, computing and identification applications. We believe the combination of our high-performance mixed-signal technologies, our broad standard products portfolio and our insight into specific applications will enable us the ability to uniquely offer our customers the solutions they need to be successful.

I am pleased to report traction in high-performance mixed-signal areas such as e-metering, with most of the key products to complete the total solution; lighting, with the new dimmable CFL driver ASIC; and significant 32-bit microcontroller design wins on the new Cortex-M0 technology, including a recent white goods design.

In support of the high-performance mixed-signal strategy, we have signed and announced two recent relationships. I'm very pleased that on October 5, we announced the merger of NXP's digital television and set-top box businesses with Trident Corporation to create a global industry leader in the digital home market, with NXP, as a result, having 60% ownership in the combined entity.

Why was this done? First, because we believe the consumer IC businesses a large high-growth opportunity best served by a capital structure dedicated to that market. Second, because we believe the combination of NXP and Trident creates the industry leader, with the customer relationships, intellectual property, low-cost infrastructure and focus required to win in that market. Third, NXP can continue to take part in the significant value opportunity created from this business. We will continue to work with Trident to assure the best ongoing support for our customers. Finally, this transaction enables NXP to better focus our business on driving leadership in high-performance mixed-signal. The transaction is expected to close in the first calendar quarter of 2010.

Secondly, the Trident announcement -- following the Trident announcement, we signed a strategic alliance with Virage Logic. As part of this transaction, we will transfer part of our digital SoC IP, personnel and expertise to Virage Logic. This partnership provides NXP with the opportunity to participate in the future value of our investments in state-of-art advanced systems IP through our equity ownership and license-sharing agreements with Virage Logic, while also enabling NXP to focus our R&D efforts on building on our deep analog and high-performance mixed-signal confidence. In summary, we will continue to have access to this leading-edge technology without being exposed to the full cost burden. This transaction is expected to close later this quarter.

Also, I'm very pleased to share with you an announcement today that we will be strengthening the management team with appointments of Kurt Sievers as General Manager for the automotive business and Frans Scheper as General Manager for the standard product business. Both will report directly to me. These new appointments bring added strength to the team, giving the leadership skills, specialist market knowledge and the operational rigor that are essential in enabling us to grow our automotive and standard products businesses. Finally, they will enable NXP to further deliver on its strategy of building leadership in high-performance mixed-signal technology while maintaining a strong standard products business.

So, in summary, Q3 results have shown continued improvement over the previous period, as illustrated by our EBITDA increase. In this quarter, we have reduced our debt levels by $814 million. We continued progress on our redesign program, and we signed two important strategic transactions that reinforce our focus on high-performance mixed-signal with a customer-focused passion to win.

Now, in terms of outlook, given the low visibility, we maintain our caution for the next couple of quarters.

With that, I'd like to turn it over to Kalley to take you through some of the operational highlights and the financial details of our performance in the third quarter.

Thank you, Rick. I will now give you an overview of the financial performance of the quarter.

We reported sales for the third quarter of $1.034 million in sales, which represents a 20.7% nominal and a 19.2% comparable increase from the second quarter, showing a visible increase in demand across all business segments and all regions, with Asia, led by China, showing the fastest recovery.

This number excludes $43 million in wafer sales to ST-Ericsson. It was, however, 14.7% lower than the third quarter of 2008 on a comparable basis as a result of the economic and financial crisis that continues to negatively impact the semiconductor industry.

Gross margin improved considerably, rising from 32.3% in Q2 to 35.8% in this quarter, excluding wafer sales to ST-Ericsson. This improvement in gross margin of $93 million is a result of higher sales, better utilization rates and the benefit from the ongoing redesign program.

Operating expenses were $22 million higher on a sequential basis, mainly due to the currency effects and increased variable selling expenses. The third-quarter adjusted EBITDA, excluding the effects of TPA and the incidental items, came in at a profit of $147 million, which was in line with the profit of $147 million in the third quarter of 2008, which included a loss of $22 million adjusted EBITDA from the divested wireless activities. In Q2 of 2009, we realized a profit of $89 million.

Net income for the quarter was a profit of $412 million compared to a loss of about $2.5 billion in the third quarter of 2008 and a profit of $344 million in the second quarter of 2009. The sequential increase in net income is largely related to higher financial income as a result of the debt restructuring transaction and our improved performance.

The net cash used for operating activities for the third quarter was minus $51 million, which was largely related to net payments of restructuring for $125 million, interest of $52 million and taxes of $9 million.

Cash at the end of the third quarter stood at $1.061 billion. The lower cash position largely reflects the bond buyback transactions undertaken in the quarter amounting to $286 million and the cashout as a result of the ongoing restructuring payment for the redesign program.

We have continued to take decisive action to reduce our overall debt level and related interest payments. During the third quarter, the overall debt level was reduced by an amount of $814 million as a result of our tender offer and several privately negotiated transactions. This leads to a decrease in related annual cash interest expenses of approximately $51 million.

Combining the result of all debt restructuring transactions, so far this year we have reduced our total debt by more than $1.3 billion. Furthermore, as Rick mentioned, last year we paid just over $500 million in interest expenses. And on the basis of the current rate, our annual cash interest expenses would amount to just over $300 million. And finally, our book to bill ratio is 1.11 in the third quarter of 2009 compared to 1.2 in the previous quarter.

Now I will turn to the performance of the individual business units. All figures I quote exclude the effect of purchase price accounting and incidental items and are provided on a comparable basis unless stated otherwise. As a reminder, at the start of 2009, we introduced a new method of cost allocation of operations and corporate and other to the individual business units in order to come to fully allocated P&Ls to the level of EBIT.

The allocated costs include, among others, costs related to corporate activities that offer the benefit to the business units and the capacity costs of manufacturing operations. The segment information for prior periods has been restated to reflect this reallocation.

Automotive and identification sales came in at $269 million compared to $200 million in the second quarter, a comparable increase of 31.5% and $326 million in the third quarter of 2008. Those sales are still below last year's levels. The market and our sales are recovering from the significant dip in the first quarter of this year. Identification sales growth was positively impacted by increased shipments for various governmental and banking projects.

Adjusted EBIT amounted to a profit of $34 million compared to a profit of $52 million in the third quarter of 2008. Adjusted EBIT on a sequential basis showed an improvement from a loss of $17 million in the second quarter of 2009, which was mainly related to higher sales and continued focus on costs that have supported the turnaround to a positive EBIT.

In automotive, highlights in the quarter include design win for core access and in-vehicle networking with the main Russian OEM. We had a major core DSP and [junior] design win in Japan and had a breakthrough design win with immobilizer with the number-two motorcycle maker in India. In identification, Indian Railways will use NXP contactless MIFARE DESFire-enabled smart ticketing. In fact, globally, 75% of all electronic tickets in public transport now use NXP MIFARE technology.

Multi-market semiconductor sales amounted to $486 million compared to $418 million in the second quarter, representing a comparable increase of 14.7%, although it was lower than the $590 million reported in the corresponding period of 2008. The sequential improvement is explained by stronger sales in Asia and Europe as a result of both inventory replenishment of supply chain and an increase in demand for end-user applications.

Adjusted EBIT came in at a profit of $56 million compared to a profit of $33 million in the second quarter and a profit of $129 million in the third quarter 2008. The sequential improvement in adjusted EBIT was mainly due to higher sales volume and increased utilizations of the fabs.

Our RF power momentum in base stations continued in the quarter, with further design wins with major base station customers. We had lighting success with our new dimmable CFL driver ASIC, with the leading lighting manufacturing and a Chinese mass market supplier. During the period, we extended our MCU, bipolar and data converter footprint in the industrial and consumer segments.

In home, sales amounted to $217 million compared to $181 million in the second quarter of this year and compared to $212 million in the third quarter of 2008. The sequential increase of 19.5% on a comparable basis was mainly explained by inventory replenishment of the supply chain. Adjusted EBIT in the third quarter amounted to a loss of $13 million, improving from a loss of $41 million in Q2 and a loss of $23 million in the corresponding period of last year. The sequential improvement was mainly due to higher sales and a lower cost base.

In home, we launched the industry's first 45-nanometer set-top box SoC platform and had several mass production starts for Spain, India and South America set-top box customers with major operators. We also had the first design win of the new HDMI 1.4 compatible tuner at a major TV OEM.

Sales in manufacturing operations, excluding wafer sales for ST-Ericsson, amounted to $52 million compared to $45 million in the second quarter and $69 million in the third quarter 2008. The improvement in sequential sales was the result of high demand in the quarter. Adjusted EBIT was a profit of $9 million compared to a profit of $5 million in the second quarter and a loss of $17 million in the same period last year.

Incidental items for the third quarter amounted to $57 million, mainly related to the sale of the fab in Caen, the closure of the fab in Fishkill and other redesign-related activities. The utilization of our manufacturing base improved to 69% in the third quarter of 2009 versus 53% in the second quarter of 2009 and 68% in the third quarter last year.

Sales in corporate and other were $10 million, relating to IP licensing and sales from NXP Software, compared to $13 million in the second quarter 2009 and $19 million in the same period last year. Adjusted EBIT was a loss of $37 million compared to a loss of $4 million in the second quarter and a loss of $77 million in the third quarter of 2008. The third quarter included incidental items of negative $17 million, which is mainly related to non-personnel-related redesign activities.

Finally, moving on to the outlook, although we have recently experienced improvements across all business segments and all regions, we have yet to see signs that this represents a fundamentally sustainable improvement of the global semiconductor industry. Considering the current business development and the unusual characteristics of this fourth quarter, we expect a flat to mid-single-digit sequential sales increase in the fourth quarter of 2009 on a business and currency-comparable basis, this excluding wafer sales to ST-Ericsson. visibility beyond the fourth quarter is still limited.

Thank you, and we would like now to open up for your questions. Jan Maarten, can you take over?

Thank you. It is Jan Maarten Ingen Housz. And as before, I will facilitate this Q&A session, addressing all questions to Rick and Kalley. And as always, would you please limit yourself to one question, as this will give more people the possibility to ask questions. And any further questions may be answered after the eventual second Q&A poll by the operator or may be addressed directly to us after the end of the call.

With that, I would like the operator to start a Q&A session.

(Operator Instructions). Jeff Harlib, Barclays Capital.

I was wondering, with the Trident transaction, if you could talk a little bit about what that will look, pro forma. You had a $13 million reported loss. There's probably some corporate in that. What will that mean going forward for the Company on a standalone basis? And are there additional cost savings resulting from that?

So let me first talk about the structure, and then I'll let Kalley talk about the financial reporting. So our intent with this entity is really to create a structure that can really go compete in the marketplace and ensure that it can drive results. And with that, it will be driven by the significant revenue growth opportunity, which we think has the opportunity to create true value enhancement associated with it.

The intent of that is, it's only a portion of our home business as it is today. So the TV front-end business, for example, and NuTune, our joint venture with Thompson on can tuners, will continue to stay part of NXP and would not be transferred over. The TV front-end business, in fact, will be moved over into our high-performance mixed-signal business, where it falls in in a very standard basis associated with that.

So it's not as simple as just looking at our home financial results today and drawing a conclusion. But with that, I'm going to let Kalley talk about the specific financial reporting of Trident.

So, to start with, Trident will be reported as equity reporting and will come in under the line that we just call, nowadays, result of unconsolidated company in the income statement. And we will have a corresponding investment in the balance sheet. And the business that are transferred, as Rick said, is not all of what is included in home. So the new tuner and the TV front-end will stay.

And right now, we are going through the process with Trident and going over what parts will be transferred and what will stay. So I don't want to give any information right now about any cost reductions or anything. But things that we don't need and Trident don't need in this upgrade, we will take care of. Did that answer your question?

To some extent. I mean, when you can give more color -- maybe my follow-up, then, for Rick, maybe you can talk about how you are seeing the different end markets into Q4, consistent with your flat to mid-single-digit sales growth, which business is performing better, which weaker, etc.

Okay. So one of the key things is obviously, clearly, to be focused on design wins. And in the current environment, the strength of our design wins is very important. From an absolute revenue reported basis, we continue to see China holding up very well, and clearly, on a sales basis, is very positive. When you look at the regional deployment of the remainder of our sales, we are actually seeing quite an increase in Europe from what we'd seen in the last couple quarters, and a lot of that being driven by the automotive segment, where we are seeing some improvement.

In the ID business, which is more of a project basis, we are actually seeing somewhat of a softening associated with that and inherent with the project-by-project basis associated with it. And broadly speaking, our MMS products across all regions continue to be very healthy, and we saw good progress in Q3 results in some of the specific North America distribution market, where clearly we've had an action item to try to see what we could do to improve our market share there.

But on the design win front, we have a number of design wins going on on the DTV front. So we are very hopeful -- it's only a handful of specific customers. We have several of those that we have design wins engaged with and production to be started, and we have several others that are basically the remaining of virtually all the other digital TV manufacturers that we are currently engaged with design win activities and hopeful that we'll be able to make significant progress with that.

In a number of other areas, like e-metering, which really is a broad-based use of our technology, we saw some recent design wins with ability to really bring our microcontroller and a lot of our interface products, as well as our ID product portfolio, together to basically provide a total solution associated with that. We already talked about the design win in the lighting opportunity.

So, clearly, the design wins that we are winning are critical to be able to drive an improved market share. But the environment we are seeing we are still very cautious on because of the lack of clarity beyond Q4. We've set the expectations at what we think is reasonable for Q4, based on what we see. But beyond Q4, very unclear what the customer end the demand is going to be, and we still don't see any true uptick in demand driving that.

Guy Baron, Deutsche Bank.

I just had a question here, and then maybe a very quick follow-up. As you look to next year, and I understand you don't want to give guidance, but what component of your revenue would be made up of some sense of minimal visibility into existing customers and scheduled ramps on new designs versus just simply a cyclical or environmental element?

Well, we don't talk about the future beyond the next quarter. So it's kind of hard to put that in a lot of perspective. I think those new design wins that we talked about will be critical to ramp. We believe that, following a period that could be somewhat soft in Q1, we are hopeful that the market will then begin to recover back to that. And most of the industry analyst projections are in the high-single-digit to low-double-digit ratios.

And clearly, we think that there is the opportunity for us to participate at that same level. But it's not really dependent upon any one piece. There's so -- you know, our product portfolio is so broad with such a large basis and we have so many design wins, there's not any individual element or piece that will be an overwhelming contributor associated with it.

But as you look to next year, what portion of what you are seeing is stuff that you essentially have either locked down or scheduled to ramp versus the variable of how things pan out over the course of the year?

We don't have to have a broad number of additional design wins to be able to maintain our market share with that kind of projected market. A significant share of our market still goes through distribution, and that's won on a day-by-day basis, or at least a big chunk of it is. So it's really hard to say how much of it is locked down versus how much of it is going to be based off future demand because, frankly, our customers don't have a commitment beyond their backlog, which is usually more like two to three months.

Okay, got it. And then just my very quick follow-up was just on, in terms of liquidity, how comfortable are you, given the sort of burden you're going to have next year, that your liquidity approaches that minimal level of $300 million over the course of the next year? And do you see more monetizations coming here?

I feel very comfortable with the liquidity. And if you look at the performance in this quarter and the increased profitability and the cash generation, so I feel very comfortable with the liquidity going forward.

Our objective was to ensure that we improve the performance of the Company so that we could be on a run rate basis to be able to support the debt burden that we have. And clearly, the $147 million on the Q3 results from an EBITDA basis, we think, puts us well underway to be able to accomplish that.

David Phipps, Citigroup.

Congratulations on another strong quarter. Could you talk a little bit about how the FX goes through some of the balance sheet and income statement? Because the depreciation and amortization seems to move around as I looked over the past few quarters. And maybe how it's affecting R&D and SG&A, if there was anything aligned with that, and potentially, on the cash balance?

I have one other quick question. Did you make the $85 million catch-up tax payment from the wireless sale?

And then my final follow-up would be, as you look out on your guidance you gave, flat to up mid-single digits, if you did flat sales, given cost savings, would you expect profitability to increase sequentially?

So the D&A, you have to -- it's moving around because part of the D&A is disappearing when we reduce the industrial footprint, like Caen was sold, Fishkill was out. And then we have done quite a limited number of investments. And most of the investment we do is in the back end. So you amortize that over half the period. That's why.

So is 204 kind of a decent level? Is the low 200s a good level to look at for the next few quarters?

Is it only for the quarters?

Quarters, yes.

I will use 340 to 360 for the year.

The last one is regarding taxes. Most of the taxes in regards to the wireless transactions are paid.

Okay. Was there a catch-up payment in the third quarter? I had one in my model of $85 million.

No, the eight -- oh, no. Now we are coming back to the -- so we did not pay $85 million. Most of the $85 million are paid, but we still have some to come, so the majority is paid.

A few tens of millions.

Yes, it's, yes, a few tens. And some of that will take a longer period than the next coming quarters.

Okay. And then on the profitability outlook, you are continuing to have cash -- you are continuing to have profitability increases. You should have some on flat sales; is that a fair statement?

So the guidance is flat to mid-single digits. And another thing is that that's increasing volume. The redesign continues. And as you know, that we got Fishkill out in this quarter. We are going to, in next year, early next year is Hamburg. And the middle of next year is ICN 5. And we are working very hard in the operations to continue to give -- to reduce our cost base. So without giving any guidance, that's the focus. OpEx we are continuing to rationalize going forward, and that's what I can say.

That's fair enough. I'll interpret that as a yes. Thank you.

Sounds like a reasonable assumption, David.

Sundar Varadarajan, Citadel Securities.

I have two questions. The first one is, as you talked about your strength in the second quarter, third quarter, and your outlook, you stressed the fact that a lot of it is due to inventory replenishment in the supply chain. Could you perhaps quantify for us how much of this growth you are seeing is coming from those kinds of factors and what may be attributed to some pickup in demand in the end market level?

I think we've talked about the fact that where we are really seeing an increase in demand is really twofold. That's clearly in the case of China, where we've seen, first, the impact of the economic stimulus in China, which was very effectively implemented. And we saw an increase in expenditures on communications infrastructure, telecom infrastructure, very early in the year, and follow-through associated with that.

And in fact, I think virtually all of our customers in China are expecting their sales in 2009 to be higher than 2008, which clearly is different than our customers in most other regions of the world. In addition to that, I think we have seen an increase in automotive demand from the incentive programs as well, both in North America as well as in Europe, and a little bit even in Asia, where the government incentives have actually driven an increase in automotive demand.

If you tried to look at all of that, I would say that the demand is -- we don't track it this way, because it's virtually impossible, but it's probably something between a third and a half of the sequential increase that we see that would be from those demand increases -- and that's really kind of a guesstimate, if you would -- and the rest of it being what we would call supply chain replenishment.

And I guess the thing that's important to point out -- the supply chain replenishment doesn't necessarily go away, because what had happened was it had dipped down so far as the supply chain had been corrected that, as you bring it back to a normal rate, it moves it up. And that doesn't necessarily mean it's a one-shot and then rolls off. It means that you kind of operate at that level associated with it. So just to be clear, associated with the supply chain replenishment.

Great, thanks. My follow-up is on the high-performance mixed-signal segment, you've laid a lot of emphasis of that been your future focus area for growth. Could you give us a sense for how much of your revenue currently comes from those kinds of products and which end markets do you think you have the most strength as it relates to mixed-signal devices?

And following this Trident transaction and the Virage Logic transaction, do you think the next focus is then going to be to make acquisitions to further strengthen your position in that area?

Okay. So it sounded like a very large question. Let me try to do it justice.

So I guess first off, today, roughly 60% of our revenue falls into that high-performance mixed-signal category. So that gives you at least a feel associated with the scope of it today. And that's, broadly speaking, it includes our ID business and virtually most of our automotive business as well. So it's kind of in the 60% basis today. As we do the Trident transaction, that actually will increase associated with it.

When you look at the breadth of our high-performance mixed-signal portfolio, it's extremely wide, everything from power and lighting, where we have our Green Chip basis, the CFL design win that we talked about in lighting, our high-performance RF business, where we continue to gain significant traction in base stations and broaden our participation in base stations on an ongoing basis. So that continues to be very positive. The leadership that we've been able to establish on ARM-based 32-bit microcontrollers with applications in a broad array of products, everything from white goods and base stations, e-metering, so a large number of applications and the ability to drive that. And then, in interface products, as well as even in some of the advanced logic parts, being able to drive that.

So when you actually look at a handset today, even though we are out of the wireless business, and look at what's around the baseband, we cover virtually all of the chips that go around that in a handset, so just to give you one example associated with it. And then obviously, as I talked about in the case of e-metering, we basically provide the solution for virtually all of the components that are required to have a true e-metering solution.

So the applications, as we talked about, in the space is extremely broad, everything from power and lighting, industrial, medical and then communications with the handsets as well. So very hard to narrow in. One of the things that makes us feel good about it is the broad array of applications from the fundamental technology we have. The inherent capability associated with the RF technology that is widespread across our entire product portfolio gives us really the core confidence in the ability to differentiate our performance.

Frank Jarman, Goldman Sachs.

Just first, on the CapEx, you've had a couple quarters now where you've spent a relatively minimal amount of CapEx. As I look forward on a longer-term sustainable basis, where do you think that the CapEx should trend as a percent of sales?

I think, if you take present run rate, we should be somewhere between $100 million and $150 million. But due to the very efficient way that we have been doing the change to our industrial footprint, we are reusing a lot. So the $11 million we have in this quarter is not representative of the run rate. So that should be somewhere between $100 million and $150 million on the annual basis.

And for us to really continue to maintain our customers' support and participation, we're going to have to, clearly, increase it. We had taken fairly draconian actions to be sure that we were absolutely spending no more than we had to, but we cannot maintain our capital expenditures at the current level and support our customers in the fashion that's required.

And then just one follow-up to a previous question on the high-performance mixed-signal plan, you stated that today you are at around 60% of your revenues are high-performance mixed-signal. As I think about the outlook over the next year to two years, ultimately, is the plan to take that to 100%, or are you always going to be operating at some percent below that 100%, given current businesses that you may want to hold onto or continue to operate in the current fashion?

Well, our standard products business, as I said, is very important to us. So as we talk about, we say, high-performance mixed-signal leadership with a strong standard product support. So if you look at the profitability potential associated with our standard products business, our transistor and diode business, as well as our speaker/sound solutions business and the profit that they generate at the bottom line, they will be important to us in continuing to maintain that position that they have and grow that business will be also significant.

The thing that we've tried to communicate is that our stepped-up investments in R&D and sales and marketing will be focused on the high-performance mixed-signal areas, where we can make a difference in driving solutions for our customers.

Michael Boam, BlueBay.

I was slightly surprised that the capacity utilization didn't increase by more in the quarter. Can you comment how much Fishkill and Caen took out of the system, in terms of fabs? And then is it that you are having to buy in a lot of chips to service certain areas of demand?

First of all, I don't have how much Fishkill and Caen was -- it's probably in the range of 8% to 10%. But I can come back to you. That's one.

And remember, some of the reductions is gradually, and we have -- of the products that we ship out of our own fabs, we have no issues. So we have not, as I said, second-sourced them anywhere. The products that we are sourcing from the outside are technologies that we don't have in-house. And that has to do also with the mix, what we are selling, if we are selling things coming out of TSMC or Charter, or if we sell technologies that we have in-house.

Did I answer your question?

Well, to some extent, yes.

And secondly, can I just ask as a follow-up, on the cost savings, do you think it would be possible to show [where there's] going forward exactly how much of the $550 million has come out at the end of each quarter, just so we can have some idea as to what the new run rate is? And also, do you still believe that you will spend the full $700 million in terms of the program?

So we are trying to get that. But you have to remember that we do not really have fully allocated P&L prior. And if you do the simple calculation, you will see that we have taken out a fair bit of costs. But that's also why we put the note in on how much the costs were associated with the wireless, the $60 million-odd of OpEx in Q3. That gives you an indication.

Okay. And on the $700 million, do you still think you'll spend $700 million? And do you still think you will spend the full $500 million this year?

The full $500 million, I don't know where you got that from, because we've never given an indication. We have said and we are still saying that we are trying to do more of the restructuring at the lower cost, and our ambition is to exceed the $550 million.

In savings?

In savings, and not spend the full $700 million. But right now, my belief is that we will spend the full $700 million.

And is the split still -- do you think you will spend -- because you spent $361 million so far. Do you still think -- will you spend the $140 million in the fourth quarter, or something similar?

I don't want to give that, because that has to do a lot with timing of when we actually pay out things. But I think -- that's why I put in the $361 million here, to give you an indication of how we have taken out costs, because, as I said before, the big fabs in Hamburg and in Nijmegen have not yet been closed. I think that gives you an indication of the timing of the cashout.

[Oren Shishadri], Credit Suisse.

Thanks for taking my question. First off, I just wanted to get a sense within your auto and ID segment, how much did auto grow versus ID? I would imagine the bulk of the growth is in auto.

And previously, you talked about some proportion -- you talked about proportion of auto and ID in that segment. Could you update us for this quarter what that was?

Of the growth? Or -- the growth was basically the same in both segments, with slightly higher growth in auto.

And our ID business grew very well also in the Q3 time period.

And you have previously talked about what proportion of auto and ID in that segment, so I guess we can assume that the proportion stayed relatively flat?

Yes.

Okay. And then, in your MMS segment, can you qualitatively or directionally talk about performance of various pieces, any particular end markets that stood out for underperformance or outperformance?

I think Rick answered that in his previous --

Yes. So we continued to see very strong performance in our high-performance RF, specifically in support of base stations. And then we saw strong growth in transistors and diodes and general-purpose logic microcontrollers. So the growth on the quarter-on-quarter basis was pretty much across the board, with not any area sticking out disproportionately. Obviously, when it comes to revenue ramp versus design wins, power and lighting was much less significant in our overall ramp on the revenue side than it is, in fact, on the design wins.

Philip Armstrong, RBC Capital Markets.

You mentioned some private transaction debt reduction. Is this beyond what you had previously announced? Is there some bond buybacks here?

Yes, there's been two small ones, yes, in August.

Is there any further requirements to use any of the wireless proceeds or your cash for debt reduction?

So, yes, to be very clear on that, that's why we have the new schedule on page -- what is it now? 14. We believe that we have no further, because we are now below the threshold of the EUR50 million.

Okay. And then just to be clear, on a previous question, you feel confident that you have enough liquidity to get through the restructuring in 2010 without having to raise any more capital?

Yes.

Aaron Husock, Lanexa.

I had two quick things. First, just -- it was kind of touched on a little bit earlier, but on the restructuring savings, can you just tell us how much of the $550 million you've realized so far?

I was trying to explain that it's not that easy to track it. But I would say that, first of all, the target is at least $550 million, and we are trying to get -- to achieve more. I would say that we are well on track, as you can see. We are basically having -- we are having a better gross margin with $300 million less sales, and OpEx is down, with $112 million on a nominal basis compared to the third quarter of last year. And I think that tells you that we are performing according to plan or slightly better.

Okay. And then you made a comment when you guys were giving your outlook, this Q4 has unusual characteristics. I don't understand what you mean by that.

So there are two things that makes it -- because right now, the range is a little bit narrow. First of all, the seasonality pattern is not normal in this quarter. Usually, NXP historically has been kind of flattish to down, while the industry probably has been up 1% or 2%.

The other thing is that, since we believe it's going to be vacation -- so a lot of the sales is going to be probably in the first eight to 10 weeks of the 13 weeks, and that means that you pretty much have a fairly good feeling about the sales because of the vacation period and the Chinese New Year.

So what we really are trying to be sure that we communicate is that, even though our range that we provided for this quarter was a little more narrow than our historic basis, we're trying to be sure that there's no confusion that we have added precision associated with it. It's just some of the unusual characteristics of this quarter that allows us to have a little more narrow range of guidance than what we would on a historic basis.

Jake Kemeny, Morgan Stanley.

Can you just give us a little bit of color in terms of how much OpEx is being reduced associated with the Trident and Virage deal?

So we are right now, as I said, I think, in comment to a previous question, we are right now going through the Trident deal and see what activities will be transferred over, what will be kept in NXP and what are we going to do with the part that doesn't fit. And there's various alternatives for that. And when we have those answers, we will come back and tell you. Right now, we don't have all those answers.

Yes, in the case of the strategic transaction with Virage, it filters in over a period of time, where we basically have the savings associated with that. And part of it depends on how much of those resources we use versus how much of those resources are used for other people. So it clearly will be phased in over a period of time, but a very positive transaction for us as well as for the employees.

And are any of the cost savings already included in your $550 million estimate, or are those the incremental?

In that case, those will be incremental.

Okay. And then, I just want to be clear on the taxes. I thought, last quarter, you said there was like $80 million to $85 million more in cash taxes to be paid related to the wireless sale. And it sounds like there's now only tens of millions remaining. Is that accurate?

No, Jake. This is Jan Maarten. What we have said at the Q1 earnings call is that for Q2, Q3 and Q4 in total, of 2009, it will be in the range of $80 million to $85 million. And that statement has been repeated at the Q2 call, that it was $80 million to $85 million for Q2, Q3 and Q4. And obviously, as we are now two quarters further down the road, we have spent part of that, but we have still a few [terms fully] to go.

Okay. And then your comments on CapEx -- the $100 million to $150 million run rate, is that today's run rate, which you feel will need to be increased in the future to support revenues, or is that $100 million to $150 million what you think is the longer-term run rate?

So what we tried to explain is, we are going through a reduction of manufacturing footprint, which means that we can reuse capital, for one. For example, a lot of the equipment from Fishkill has been reutilized elsewhere, which means that we don't have to do CapEx. And we've been running this, as Rick said, on a very, very tight ship.

We also have said, like we said in the last quarter, the levels that we have reported in this quarter, like the $11 million, is not sustainable. On an annualized basis, we should be in the area of $100 million to $150 million. That's what we're saying. Was that clear?

Very. Thank you.

There are no further questions.

So thank you very much, operator. So once again, thank you for your support. We are encouraged about the progress we made in terms of revenue in still a choppy environment, and clearly, the cost savings that were able to result in the improved EBITDA and financial performance that we achieved in the quarter.

We have now laid out the strategy for high-performance mixed-signal, and clearly the challenge for us is how rapidly we can accelerate the implementation associated with it. So thanks again, and we'll talk to you next quarter.

Ladies and gentlemen, this concludes the NXP Semiconductors third-quarter 2009 results investors and analysts conference call on Friday, October 23, 2009. For any further questions, you may contact NXP's Investor Relations Department. Please visit their website, www.nxp.semiconductor/investor (sic). Thank you for participating. You may now disconnect.